Delta says available cash will continue to dwindle

Delta Air Lines Inc., the world’s biggest airline operator, said Monday its available cash on hand will continue to fall by the end of the year as demand for air travel has been hit hard by the economic downturn.

The Atlanta-based airline also said in a regulatory filing that its 2010 funding requirement for its defined benefit pension plans, which have been frozen for future accruals, is estimated to increase by $450 million as compared to 2009. The increase in required funding is due primarily to the decline in the investment markets in 2008.

On the positive side, Delta said it expects its year-over-year revenue per available seat mile decline for the third quarter will show a slight improvement from the second-quarter year-over-year change. The airline expects the sequential improvement to continue in the fourth quarter.

Delta said system yields for September-December are expected to be 11 percent to 14 percent lower than the same period last year. Yield is the revenue airlines get per seat for each mile flown.

System capacity is expected to be down 7 percent to 9 percent for 2009 compared to 2008, Delta said.

Delta, which acquired Northwest Airlines last year, said it remains on track with its integration and expects to receive a single operating certificate from the FAA by the end of 2009.

As of June 30, Delta had $5.4 billion in unrestricted liquidity, including $4.9 billion in cash, cash equivalents and short-term investments and $500 million available under a line of credit.

Delta said previously it expects the total figure to fall to $5 billion by the end of the third quarter, which ends Sept. 30. It reiterated that Monday, but added that it expects the total figure to fall to $4.6 billion by the end of the year.

The projection comes amid word that Delta is considering making a cash infusion of a couple hundred million dollars to aid struggling Japan Airlines Corp.

In exchange, Delta could get a stake in Japan Airlines, an expanded presence in Japan and coveted access to the closest airport to the Tokyo business center.

The talks between the two carriers are in the preliminary stage, and it is unclear what form a partnership between Delta and Japan Airlines might take.

Some analysts have said the move would make sense for Delta and help expand its position in a key market like Japan. But others question why Delta would want to use its cash to make an investment in Japan Airlines.

In its Securities and Exchange Commission filing on Monday, Delta said it expects to achieve more than $400 million in merger synergies for the first nine months of 2009. The airline said its acquisition of Northwest has improved revenue from increased market share, Delta’s affinity card agreement and alignment of frequent flyer programs. In addition, the airline said, costs have been reduced through streamlined overhead, facilities and technology, elimination of dedicated freighter flying and supply chain savings.